In the week that foreign investors dumped the most South African bonds since the financial crisis, those who sat tight reaped the best carry return in emerging markets.
Non-residents sold a net R15bn of South African bonds in the five days ending May 11, the most since the week ending October 24 2008, according to data compiled by Bloomberg. The rand’s carry return in the period was 2.1%, more than double that of the second-placed rouble.
Higher US treasury yields and global risk-off sentiment have attracted money to the dollar, with emerging market assets seeing the biggest outflows since 2016 in the week ending May 9, according to Bank of America Merrill Lynch.
Still, the strengthening rand and yields among the highest in emerging markets made the South African debt a good bet, according to Nedbank.
“Real yields are still fairly attractive for foreign investors and when global tensions do ease, flows may normalise,” said Reezwana Sumad, a Johannesburg-based analyst at Nedbank.
The rand was little changed at R12.26/$ by 13:54 in Johannesburg after gaining 2% last week and at 17;00 was trading at R12.27/$. The currency may strengthen to 11.50 over the next six months, according to Goldman Sachs, which recommended on May 9 shorting the greenback against the rand, targeting a return of 10%.
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